As per the case facts, a company was incorporated under the Companies Act and later converted into a Public Limited Company. The present appeals arise from a common judgment and ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7054 OF 2021
BALRAM GARG …..APPELLANT
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA
……RESPONDENT
WITH
CIVIL APPEAL NO.7590 OF 2021
MS. SHIVANI GUPTA & ORS. …..APPELLANTS
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA
……RESPONDENT
J U D G M E N T
Vineet Saran, J.
1. The present Civil Appeals arise out of a common judgement and
order dated 21.10.2021 passed by the Securities Appellate
Tribunal (for short “SAT”), wherein the Tribunal dismissed the
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Appeals No.375 and 376 of 2021 filed by the Appellants herein
and upheld the order dated 11.05.2021 passed by the Whole Time
Member (for short “WTM”) of Securities and Exchange Board of
India (for short “SEBI”)
2. Brief facts relevant for the purpose of the present appeals are that
P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005
under the Companies Act, 1956 as a Private Limited Company.
However, pursuant to a resolution passed by the shareholders on
July 5, 2011, the company was converted into a Public Limited
Company, following which the name of the company was changed
to “PC Jeweller Ltd.” (for short “PCJ”) and a fresh certificate of
incorporation was issued.
3. The genesis of the present dispute is rooted in the action of
Respondent/SEBI against the appellants vide an impounding
order dated 17.12.2019 and a showcause notice dated
24.04.2020. The crux of the allegations of the impounding order
and the showcause notice are as follows:
i.Padam Chand Gupta (P.C. Gupta) was the Chairman
of PCJ during the relevant period and was a
“connected person” in terms of Regulation 2(1)(d)(i)
and an “insider” under Regulation 2(1)(g) of the SEBI
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(Prevention of Insider Trading Regulations), 2015 (for
short “PIT Regulations”).
ii.Balram Garg, who is the brother of P.C. Gupta and the
Managing Director of PCJ is also a “connected person”
in terms of Regulation 2(1)(d)(i) and an “insider” under
Regulation 2(1)(g) of the PIT Regulations.
iii.That allegedly, the appellants in C.A. No.7590/2021,
namely, Sachin Gupta, Smt. Shivani Gupta and Amit
Garg traded on the basis of Unpublished Price
Sensitive Information (for short “UPSI”) received by
them on account of their alleged proximity to P.C.
Gupta and Balram Garg between the period from
01.04.2018 to 31.07.2018.
iv.The above proximity was alleged on the basis of the
fact that Sachin Gupta and Smt. Shivani Gupta are
the son and daughterinlaw of Balram Garg’s
deceased brother late P.C. Gupta. Moreover, Amit Garg
is the son of Amar Garg, who was also the brother of
Balram Garg. It was also alleged that all the appellants
shared the same residence.
4. Balram Garg, the appellant in C.A. No.7054/2021, filed his reply
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(dated 07.08.2020) to the allegations made against him, wherein
he stated the following:
i.That the foundational facts were not there to prove or
raise the alleged presumption. SEBI failed to place on
record any material to prove that the appellants in
C.A. No.7590/2021 were “connected persons” to Mr.
Balram Garg as required by Regulation 2(1)(d)(ii)(a)
read with Regulation 2(1)(f) of the PIT Regulations, as
none of the appellants C.A. No.7590/2021 were
financially dependent on Balram Garg or consulted
Balram Garg in any decision related to trading in
securities. Presumption is a rule of evidence which
cannot be drawn unless and until such foundational
facts are proved.
ii.That no material was brought on record to prima facie
show any transfer of information to the appellants in
C.A. No.7590 of 2021
iii.That merely being a family/relative cannot by itself be
a ground for the offence of insider trading, especially
when in furtherance of a family agreement, the family
was partitioned in 2011 and there had been no
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connection between them ever since.
iv.Moreover, Sachin Gupta resigned from the post of
President (Gold Manufacturing) held by him in the
company on 31.03.2015 pursuant to the family
partition. Since then, neither Sachin Gupta nor his
wife Mrs. Shivani Gupta had anything to do with the
business of the PCJ.
5. After granting an opportunity of personal hearing to the appellant
on 24.12.2020, the Whole Time Member of SEBI passed final
order dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the
Appellants along with restraining the appellants from accessing
the securities market and buying, selling or dealing in securities,
either directly or indirectly, in any manner for a period of 1 year
from the date of the order and also restrained the appellants from
dealing with the scrip of PCJ for a period of 2 years.
6. Aggrieved by the order of the WTM of SEBI, the Appellants filed
appeals before the SAT. The Tribunal, vide its common
judgement and order dated 21.10.2021, dismissed the Appeals
preferred by the Appellants and held that:
“Upon hearing both the sides, in our view, the
reasoning of the Ld. WTM cannot be faulted with.
The facts as highlighted by the Ld. WTM would
show that though there was a family arrangement
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within the family on two occasions, there was no
estrangement, as can be seen from the facts
highlighted by the Ld. WTM (supra). Additionally,
in our view, the very fact that appellant Shivani
had authorized her cousin brotherinlaw i.e.
appellant Amit to trade on her behalf, would belie
the case of the appellants that family settlements
means family estrangement. It cannot be gainsaid
that the appellants are residing at the same
address and even appellant Mr. Balram Garg’s
address is ‘the front side’ of the premise. The
trading pattern of the concerned appellant i.e.
withholding of the selling of trade once buy back
talk started within the company and again selling
spree the shares by them once the buy back offer
was made public till the rejection of the proposal by
the State Bank of India was made known to the
public, would clearly show that the concerned
appellants were aware of both the UPSI.
It is true that there is no direct evidence as to who
had disseminated this insider information to the
appellants in Appeal no. 376 of 2021. Late Shri
Padam Chand Gupta was the father of the
appellant Mr. Sachin Gupta and fatherinlaw of
the appellant Ms. Shivani Gupta and uncle of
appellant Mr. Amit Garg. Similarly, appellant Mr.
Balram Garg is the uncle of appellant Mr. Sachin
Gupta and appellant Mr. Amit Garg. All of them
were residing in the same address. Appellant Mr.
Sachin Gupta had financial transactions with the
company of which appellant Mr. Balram Garg was
Managing Director. Considering all of the above
facts, on preponderance of probability, it can very
well be concluded that Late Padam Chand as well
as appellant Mr. Balram disseminated both UPSI to
the appellants in appeal no. 376 of 2021.”
7. Aggrieved by the above order of the SAT dated 21.10.2021, the
appellants filed the present appeals (C.A. No.7054/2021 by
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Balram Garg and C.A. No.7590/2021 by Mrs. Shivani Gupta,
Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd.) under
section 15Z of the Securities and Exchange Board of India Act,
1992. Since, P.C. Gupta expired in January 2019 after the
notices were issued, hence the case was dropped as against him.
8. Mr. Dhruv Mehta, learned Senior Counsel for the Appellant
Balram Garg (in C.A. No.7054 of 2021) has submitted that the
WTM has held that the appellants no.1 to 3 in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg
(also referred to as Noticee no.1 to 3 in the showcause notices)
were not “connected persons” or “immediate relatives” qua the
appellant Balram Garg and that this finding of the WTM has
become final. It was further submitted that the appellant Mr.
Balram Garg was found to have violated only Regulation 3 of PIT
Regulations, 2015 and that unlike Regulation 4(2) of PIT
Regulations, there is no provision to raise any presumption under
the said Regulation 3.
9. It was also contented that to prove the violation of Regulation 3 of
PIT Regulations, the burden of proof was on SEBI to establish any
“communication” of UPSI by placing on record cogent evidence
viz. call details, emails, witnesses etc. It was submitted that the
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Respondent in this case has failed to place any such evidence on
record. Moreover, it was submitted that the presumption against
“immediate relative” is provided in the Regulations to ensure that
relatives who are financially or otherwise under the complete
control of a connected person are not used for insider trading.
However, in this case, no such possibility existed in relation to the
appellant Mr. Balram Garg and the other appellants in C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and
Amit Garg.
10. The learned Senior Counsel further contented that the reliance of
the respondent on the transactions between appellant Sachin
Gupta and the Company (PCJ) is against the principles of natural
justice as these allegations were not part of the show cause
notices. It was also submitted that the name of the appellant
Balram Garg has been used interchangeably with that of late
P.C.Gupta and there is no material on record for the WTM and the
SAT to arrive at the finding that both late P.C.Gupta and the
appellant Balram Garg communicated the UPSI to the appellants
in C.A. No.7590 of 2021.
11. Mr. V. Giri, learned Senior Counsel for the appellants in C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta,
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Amit Garg and Quick Developers Pvt. Ltd., has contended that the
entire case of insider trading is set up against these appellants
only on the basis of the close relationship between the parties.
However, he submitted that the appellants have placed sufficient
material on record to demonstrate that there was a complete
breakdown of ties between the parties, both at personal and
professional level and that the said estrangement was much prior
to the UPSI having coming into existence.
12. The learned Senior Counsel has further contented that even
assuming that the appellants have not been able to demonstrate a
complete breakdown of ties between the parties, it was not open
for the SAT to turn the Statute on its head by reversing the
burden of proof on the appellants by conveniently ignoring the
fact that the onus was actually on SEBI to prove that the
appellants were in possession or having access to UPSI.
13. It was also contended that the charges against the appellants in
C.A. No.7590 of 2021 have been sustained solely on the basis of
circumstantial evidence viz. trading patterns and timing of trades
by the appellants. Moreover, it was not open to the WTM and SAT
to hold the appellants guilty of the offence of insider trading in the
absence of any other concrete evidence as SEBI failed to produce
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such evidence. The learned Senior Counsel also emphasized on
the fact that the charges against the appellants that they were
“connected persons” within the meaning of Regulation 2(1)(d) of
the PIT Regulations was expressly rejected by the WTM and that
the burden of proving that the appellants are “insiders” by
invoking Regulation 2(1)(g)(ii) of PIT Regulations was completely
upon the SEBI and that they failed to discharge this burden.
14. Per contra, Mr. Arvind Datar, learned Senior Counsel for the
Respondent has submitted that on April 25, 2018, PCJ initiated
discussions regarding buyback of fully paid up equity shares. On
10.05.2018, pursuant to the discussion and approval by the
Board, the company, after market hours, informed the stock
exchange of their offer of buyback of 1,21,14,285 fully paid up
equity shares of Rs. 10/ each at a price of Rs. 350/ per equity
share. As before this date, the information about buyback was
not disclosed, and since the information pertained to change in
capital structure of the company, this information qualified as
Unpublished Price Sensitive Information1 (for short “UPSI1”).
Accordingly, the period from April 25, 2018 to May 10, 2018 has
been taken as the period of UPSI1.
15. It was further submitted that on July 7, 2018, the lead Banker of
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PCJ, State Bank of India (for short “SBI”), refused to give No
Objection Certificate (for short “NOC”) for the buyback of equity
shares. Hence, on July 13,2018, the Board approved the
withdrawal of the buyback offer and the same was informed to
the Exchanges after market hours. It was submitted that this
information has been considered as Unpublished Price Sensitive
Information2 (for short “UPSI2”) as the same was likely to
materially affect the price of the shares of the company. Moreover,
the information pertaining to proposed buyback of equity shares
of the company came into existence on July 7, 2018 and became
public on July 13, 2018. Accordingly, the period from July 7,
2018 to July 13, 2018 has been taken as period of UPSI2.
16. It has been contended that appellant Balram Garg contravened
Regulation 3(1) of the PIT Regulations and Section 12A(c) of the
SEBI Act,1992, by communicating the UPSI to the appellants in
C.A. No.7590 of 2021, by being an “insider” and “connected
person” within the meaning of PIT Regulations, and by being privy
to discussions and communications pertaining to buyback and
withdrawal of equity shares. Additionally, by virtue of being the
Managing Director (MD) of the PCJ, Balram Garg was in
possession of UPSI1 and UPSI2.
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17. Mr. Datar has contended that during the period 02.04.2018 to
31.07.2018, trades were executed by Appellants in C.A. No.7590
of 2021 while in possession of UPSI and that they made unlawful
gains and avoided losses. Trades were executed from the trading
account of Mrs. Shivani Gupta from 02.04.2018 and continued till
24.04.2018. No trades were undertaken in May and June 2018
and then sell trades were undertaken from July 6, 2018 till July
13, 2018 i.e. during UPSI2. Appellant Mrs. Shivani Gupta had
100% concentration in the scrip of PCJ and these trades were
executed by Mrs. Shivani Gupta, Sachin Gupta and Amit Garg,
i.e. Appellant No. 1,2, and 3 respectively in C.A. No.7590 of 2021.
18. The learned Senior Counsel further contented that the Appellant
No. 4 (in C.A. No.7590 of 2021) i.e. Quick Developers Pvt. Ltd,
took short position on 13.07.2018 i.e. just before information
pertaining to withdrawal was communicated to the Exchanges. It
is submitted that such short positions were taken in anticipation
of a price fall. Appellant Amit Garg and his wife are 100%
shareholders of Quick Developers Pvt. Ltd., hence they, through
the trades executed from the account of Quick Developers Pvt.
Ltd., avoided losses and also made profit.
19. In the context of the family settlement, learned Senior Counsel
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has contended that such a settlement, at best, was an internal
division and does not imply that all ties between the family
members were severed or that relationship of appellant Balram
Garg with appellants in C.A. No.7590 of 2021 was estranged. It
was further argued that the appellants did not cease to have
association with each other, which is established by the following
facts:
i.Sachin Gupta continued to have business transactions
with PCJ. PCJ even paid rent to Sachin Gupta to the
tune of Rs.4 lakhs for Financial Year 201516, Rs.77
lakhs for the Financial Year 201617 and Rs.78 lakhs
for the financial Year 201718.
ii.Sachin Gupta was the nominee of the Demat Account
of late P.C. Gupta and after his death, the holdings of
P.C. Gupta in the company were held by Sachin
Gupta. Hence, it cannot be said that the father and
son relationship was estranged.
iii.Appellant Balram Garg and the Appellants No. 1,2,
and 3 in C.A. No.7590 of 2021 i.e. Mrs. Shivani Gupta,
Sachin Gupta and Amit Garg share the same
residential address.
20. Reliance was placed on the SAT order in Utsav Pathak vs. SEBI
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(order dated 12.07.2020 in Appeal No. 430 of 2019) wherein
the SAT had laid down the following ratio by relying upon the
judgement of this court in SEBI vs. Kishore R. Ajmera [(2016) 6
SCC 368] and US District Court’s order in United States of
America vs. Raj Rajaratnam and Danielle Chiesi [09 Cr 1184
(RJH)]:
“From the aforesaid foundational facts, the
circumstantial evidence or on a preponderance of
probability by a logical process of reasoning from
the totality of the attending facts and
circumstances as stated aforesaid, an irresistible
inference can be drawn that the appellant had
passed on the price sensitive information regarding
the open offer to the Tippees. Such inference taken
from the immediate and proximate facts and
circumstances surrounding the events is
reasonable and logical which any prudent man
would arrive at such a conclusion. The Supreme
Court in Kanhaiyalal Patel (supra) held that an
inferential conclusion from proved and admitted
facts would be permissible and legally justified so
long as the same is reasonable.”
The learned Senior Counsel also submitted that the
abovementioned proposition has been followed by the SAT in
Navin Kumar Tayal & Anr. Vs SEBI in order dated 02.08.2021
in Appeal No. 08 of 2018.
21. Mr. Datar concluded his submissions by stating that the close
relationship of the appellants in C.A. No.7590 of 2021 with the
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appellant Balram Garg, especially in view of the trading pattern
makes it abundantly clear that the appellants Mrs. Shivani
Gupta, Sachin Gupta and Amit Garg were in possession of UPSI1
& 2, who could not have got it from anywhere else except Balram
Garg, who by virtue of being the MD of the company, possessed
the crucial UPSI.
22. For ready reference, the relevant provisions of the concerned Acts
and Regulations are extracted below:
Section 11(2)(g) of the Securities and Exchange Board of India
Act, 1992
“11. (1) Subject to the provisions of this Act, it shall
be the duty of the Board to protect the interests of
investors in securities and to promote the
development of, and to regulate the securities
market, by such measures as it thinks fit.
(2) Without prejudice to the generality of the
foregoing provisions, the measures referred to
therein may provide for—
(a)...
(b)...
(c)...
(d)...
(e)...
(f)...
(g) prohibiting insider trading in securities;
(h)…
………….
………….”
Section 11(4) of the Securities and Exchange Board of India
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Act, 1992
“[(4) Without prejudice to the provisions contained
in subsections (1), (2), (2A) and (3) and section
11B, the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or
securities market, take any of the following
measures, either pending investigation or inquiry
or on completion of such investigation or inquiry,
namely:—
(a) suspend the trading of any security in a
recognised stock exchange;
(b) restrain persons from accessing the securities
market and prohibit any person associated
with securities market to buy, sell or deal in
securities;
(c) suspend any officebearer of any stock
exchange or selfregulatory organisation from
holding such position;
(d) impound and retain the proceeds or securities in
respect of any transaction which is under
investigation;
(e) attach, after passing of an order on an
application made for approval by the Judicial
Magistrate of the first class having jurisdiction, for
a period not exceeding one month, one or more
bank account or accounts of any intermediary or
any person associated with the securities market
in any manner involved in violation of any of the
provisions of this Act, or the rules or the regulations
made thereunder:
Provided that only the bank account or accounts or
any transaction entered therein, so far as it relates to
the proceeds actually involved in violation of any of the
provisions of this Act, or the rules or the regulations
made thereunder shall be allowed to be attached;
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(f) direct any intermediary or any person
associated with the securities market in any
manner not to dispose of or alienate an asset
forming part of any transaction which is under
investigation:
Provided that the Board may, without prejudice to the
provisions contained in subsection (2) or subsection
(2A), take any of the measures specified in clause (d) or
clause (e) or clause (f), in respect of any listed public
company or a public company (not being intermediaries
referred to in section 12) which intends to get its
securities listed on any recognised stock exchange
where the Board has reasonable grounds to believe
that such company has been indulging in insider
trading or fraudulent and unfair trade practices
relating to securities market.
Provided further that the Board shall, either before or
after passing such orders, give an opportunity of
hearing to such intermediaries or persons concerned.]”
(emphasis supplied)
Section 12A of the Securities and Exchange Board of India
Act, 1992
“Prohibition of manipulative and deceptive devices,
insider trading and substantial acquisition of
securities or control.
12A. No person shall directly or indirectly—
(a) use or employ, in connection with the issue,
purchase or sale of any securities listed or
proposed to be listed on a recognized stock
exchange, any manipulative or deceptive device or
contrivance in contravention of the provisions of
this Act or the rules or the regulations made
thereunder;
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(b) employ any device, scheme or artifice to
defraud in connection with issue or dealing in
securities which are listed or proposed to be listed
on a recognised stock exchange;
(c) engage in any act, practice, course of business
which operates or would operate as fraud or deceit
upon any person, in connection with the issue,
dealing in securities which are listed or proposed to
be listed on a recognised stock exchange, in
contravention of the provisions of this Act or the
rules or the regulations made thereunder;
(d) engage in insider trading;
(e)deal in securities while in possession of
material or nonpublic information or communicate
such material or nonpublic information to any
other person, in a manner which is in contravention
of the provisions of this Act or the rules or the
regulations made thereunder;
(f)acquire control of any company or securities
more than the percentage of equity share capital of
a company whose securities are listed or proposed
to be listed on a recognised stock exchange in
contravention of the regulations made under this
Act.]”
(emphasis supplied)
Section 15G of the Securities and Exchange Board of India
Act, 1992
“Penalty for insider trading.
15G.If any insider who,—
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(i) either on his own behalf or on behalf of any
other person, deals in securities of a body
corporate listed on any stock exchange on the
basis of any unpublished pricesensitive
information; or
(ii) communicates any unpublished pricesensitive
information to any person, with or without his
request for such information except as required in
the ordinary course of business or under any law;
or
(iii) counsels, or procures for any other person to
deal in any securities of any body corporate on the
basis of unpublished pricesensitive information,
shall be liable to a penalty 81[which shall not be less
than ten lakh rupees but which may extend to twenty
five crore rupees or three times the amount of profits
made out of insider trading, whichever is higher].”
(emphasis supplied)
Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 2015
Definitions.
2.(1)In these regulations, unless the context
otherwise requires, the following words,
expressions and derivations therefrom shall have
the meanings assigned to them as under:–
(a) “Act” means the Securities and Exchange
Board of India Act, 1992 (15 of 1992);
(b) “Board” means the Securities and Exchange
Board of India;
(c)“compliance officer” means any senior
officer, designated so and reporting to the
board of directors or head of the organization
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in case board is not there, who is financially
literate and is capable of appreciating
requirements for legal and regulatory
compliance under these regulations and
who shall be responsible for compliance of
policies, procedures, maintenance of records,
monitoring adherence to the rules for the
preservation of unpublished price sensitive
information, monitoring of trades and the
implementation of the codes specified in
these regulations under the overall
supervision of the board of directors of the
listed company or the head of an
organization, as the case may be.
(d) "connected person" means,
(i)any person who is or has during the six
months prior to the concerned act been
associated with a company, directly or
indirectly, in any capacity including by
reason of frequent communication with its
officers or by being in any contractual,
fiduciary or employment relationship or by
being a director, officer or an employee of
the company or holds any position
including a professional or business
relationship between himself and the
company whether temporary or
permanent, that allows such person,
directly or indirectly, access to
unpublished price sensitive information or
is reasonably expected to allow such
access.
(ii)Without prejudice to the generality of
the foregoing, the persons falling within
the following categories shall be deemed to
be connected persons unless the contrary
is established,
(a) an immediate relative of connected
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persons specified in clause (i); or
(b) a holding company or associate
company or subsidiary company; or
(c) an intermediary as specified in section
12 of the Act or an employee or director
thereof; or
(d)an investment company, trustee company,
asset management company or an
employee or director thereof; or
(e) an official of a stock exchange or of
clearing house or corporation; or
(f) a member of board of trustees of a
mutual fund or a member of the board of
directors of the asset management
company of a mutual fund or is an
employee thereof; or
(g) a member of the board of directors or
an employee, of a public financial
institution as defined in section 2 (72) of
the Companies Act, 2013; or
(h)an official or an employee of a self
regulatory organization recognised or
authorized by the Board; or
(i) a banker of the company; or
(j) a concern, firm, trust, Hindu undivided
family, company or association of persons
wherein a director of a company or his
immediate relative or banker of the
company, has more than ten per cent. of
the holding or interest;
NOTE:It is intended that a connected person is
one who has a connection with the company that
is expected to put him in possession of unpublished
price sensitive information. Immediate relatives
and other categories of persons specified above are
also presumed to be connected persons but such a
presumption is a deeming legal fiction and is
rebuttable. This definition is also intended to bring
into its ambit persons who may not seemingly
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occupy any position in a company but are in
regular touch with the company and its officers
and are involved in the know of the company’s
operations. It is intended to bring within its ambit
those who would have access to or could access
unpublished price sensitive information about any
company or class of companies by virtue of any
connection that would put them in possession of
unpublished price sensitive information.
(e)"generally available information" means
information that is accessible to the public on
a nondiscriminatory basis;
NOTE:It is intended to define what constitutes
generally available information so that it is easier
to crystallize and appreciate what unpublished
price sensitive information is. Information
published on the website of a stock exchange,
would ordinarily be considered generally available.
(f)“immediate relative” means a spouse of a
person, and includes parent, sibling, and
child of such person or of the spouse, any of
whom is either dependent financially on
such person, or consults such person in
taking decisions relating to trading in
securities;
NOTE:It is intended that the immediate relatives of
a “connected person” too become connected
persons for purposes of these regulations. Indeed,
this is a rebuttable presumption.
(g)"insider" means any person who is:
(i) a connected person; or
(ii)in possession of or having access to
unpublished price sensitive
information;
NOTE:Since “generally available information” is
defined, it is intended that anyone in possession of
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or having access to unpublished price sensitive
information should be considered an “insider”
regardless of how one came in possession of or
had access to such information. Various
circumstances are provided for such a person to
demonstrate that he has not indulged in insider
trading. Therefore, this definition is intended to
bring within its reach any person who is in receipt
of or has access to unpublished price sensitive
information. The onus of showing that a certain
person was in possession of or had access to
unpublished price sensitive information at the time
of trading would, therefore, be on the person
leveling the charge after which the person who has
traded when in possession of or having access to
unpublished price sensitive information may
demonstrate that he was not in such possession or
that he has not traded or or he could not access or
that his trading when in possession of such
information was squarely covered by the
exonerating circumstances.
(h) "promoter"…………………………………
(i)“securities”………………………………...
(j)“specified”………………………………….
(k) “takeover regulations” ………………….
(l)"trading" means and includes subscribing,
buying, selling, dealing, or agreeing to
subscribe, buy, sell, deal in any securities,
and "trade" shall be construed accordingly;
NOTE: Under the parliamentary mandate, since the
Section 12A (e) and Section 15G of the Act employs
the term 'dealing in securities', it is intended to
widely define the term “trading” to include dealing.
Such a construction is intended to curb the
activities based on unpublished price sensitive
information which are strictly not buying, selling or
subscribing, such as pledging etc when in
possession of unpublished price sensitive
information.
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(m)“trading day” ……………………………
(n) "unpublished price sensitive
information" means any information,
relating to a company or its securities,
directly or indirectly, that is not generally
available which upon becoming generally
available, is likely to materially affect the
price of the securities and shall, ordinarily
including but not restricted to, information
relating to the following: –
(i)financial results;
(ii)dividends;
(iii)change in capital structure;
(iv)mergers, demergers, acquisitions,
delistings, disposals and expansion
of business and such other
transactions;
(v)changes in key managerial
personnel.
(vi)material events in accordance with
the listing agreement
NOTE: It is intended that information relating to a
company or securities, that is not generally
available would be unpublished price sensitive
information if it is likely to materially affect the
price upon coming into the public domain. The
types of matters that would ordinarily give rise to
unpublished price sensitive information have been
listed above to give illustrative guidance of
unpublished price sensitive information.
(2) Words and expressions used and not defined
in these regulations but defined in the Securities
and Exchange Board of India Act, 1992 (15 of
1992), the Securities Contracts (Regulation) Act,
25
1956 (42 of 1956), the Depositories Act, 1996 (22
of 1996) or the Companies Act, 2013 (18 of 2013)
and rules and regulations made thereunder shall
have the meanings respectively assigned to them
in those legislation.
CHAPTER – II
RESTRICTIONS ON COMMUNICATION AND
TRADING BY INSIDERS
Communication or procurement of
unpublished price sensitive information.
3.(1) No insider shall communicate, provide, or
allow access to any unpublished price sensitive
information, relating to a company or securities
listed or proposed to be listed, to any person
including other insiders except where such
communication is in furtherance of legitimate
purposes, performance of duties or discharge of
legal obligations.
NOTE:This provision is intended to cast an
obligation on all insiders who are essentially
persons in possession of unpublished price
sensitive information to handle such information
with care and to deal with the information with
them when transacting their business strictly on a
needtoknow basis. It is also intended to lead to
organisations developing practices based on need
toknow principles for treatment of information in
their possession.
(2)No person shall procure from or cause the
communication by any insider of unpublished price
sensitive information, relating to a company or
securities listed or proposed to be listed, except in
furtherance of legitimate purposes, performance of
duties or discharge of legal obligations.
26
NOTE:This provision is intended to impose a
prohibition on unlawfully procuring possession of
unpublished price sensitive information.
Inducement and procurement of unpublished price
sensitive information not in furtherance of one’s
legitimate duties and discharge of obligations
would be illegal under this provision.
(3)Notwithstanding anything contained in this
regulation, an unpublished price sensitive
information may be communicated, provided,
allowed access to or procured, in connection with a
transaction that would:–
(i)entail an obligation to make an open offer
under the takeover regulations where the
board of directors of the 9[listed] company
is of informed opinion that 10[sharing of
such information] is in the best interests of
the company;
NOTE:It is intended to acknowledge the necessity
of communicating, providing, allowing access to or
procuring UPSI for substantial transactions such as
takeovers, mergers and acquisitions involving
trading in securities and change of control to
assess a potential investment. In an open offer
under the takeover regulations, not only would the
same price be made available to all shareholders
of the company but also all information necessary
to enable an informed divestment or retention
decision by the public shareholders is required to
be made available to all shareholders in the letter
of offer under those regulations.
(ii)not attract the obligation to make an open
offer under the takeover regulations but
where the board of directors of the
27
11[listed] company is of informed opinion
12[that sharing of such information] is in
the best interests of the company and the
information that constitute unpublished
price sensitive information is disseminated
to be made generally available at least
two trading days prior to the proposed
transaction being effected in such form as
the board of directors may determine 13[to
be adequate and fair to cover all relevant
and material facts].
NOTE: It is intended to permit communicating,
providing, allowing access to or procuring UPSI
also in transactions that do not entail an open offer
obligation under the takeover regulations 14[when
authorised by the board of directors if sharing of
such information] is in the best interests of the
company. The board of directors, however, would
cause public disclosures of such unpublished price
sensitive information well before the proposed
transaction to rule out any information asymmetry
in the market.
(4)For purposes of subregulation (3), the board of
directors shall require the parties to execute
agreements to contract confidentiality and non
disclosure obligations on the part of such parties
and such parties shall keep information so received
confidential, except for the purpose of sub
regulation (3), and shall not otherwise trade in
securities of the company when in possession of
unpublished price sensitive information.
Trading when in possession of unpublished
price sensitive information.
4.(1)No insider shall trade in securities that are
listed or proposed to be listed on a stock exchange
when in possession of unpublished price sensitive
28
information:
Provided that the insider may prove his innocence
by demonstrating the circumstances including the
following: –
(i)the transaction is an offmarket interse
transfer between 18[insiders] who were in
possession of the same unpublished price
sensitive information without being in
breach of regulation 3 and both parties
had made a conscious and informed trade
decision.
(ii)in the case of nonindividual insiders:
a.the individuals who were in possession
of such unpublished price sensitive
information were different from the
individuals taking trading decisions
and such decisionmaking individuals
were not in possession of such
unpublished price sensitive
information when they took the
decision to trade; and
b.appropriate and adequate
arrangements were in place to ensure
that these regulations are not violated
and no unpublished price sensitive
information was communicated by the
individuals possessing the information
to the individuals taking trading
decisions and there is no evidence of
such arrangements having been
breached;
(iii)the trades were pursuant to a trading
plan set up in accordance with regulation
5.
NOTE: When a person who has traded in
securities has been in possession of unpublished
price sensitive information, his trades would be
29
presumed to have been motivated by the
knowledge and awareness of such information in
his possession. The reasons for which he trades or
the purposes to which he applies the proceeds of
the transactions are not intended to be relevant for
determining whether a person has violated the
regulation. He traded when in possession of
unpublished price sensitive information is what
would need to be demonstrated at the outset to
bring a charge. Once this is established, it would
be open to the insider to prove his innocence by
demonstrating the circumstances mentioned in the
proviso, failing which he would have violated the
prohibition.
(2) In the case of connected persons the onus of
establishing, that they were not in possession of
unpublished price sensitive information, shall be on
such connected persons and in other cases, the
onus would be on the Board.
(3)The Board may specify such standards and
requirements, from time to time, as it may deem
necessary for the purpose of these regulations.
23. We have heard learned counsel for the parties at length and have
carefully perused the record.
24. The submission of the Respondent that appellant Balram Garg
contravened Regulation 3(1) of the PIT Regulations and section
12A(c) of the SEBI Act, by communicating the UPSI to the
appellants in C.A. No.7590 of 2021, being an “insider” and
“connected person” within the meaning of PIT Regulations is not
worthy of acceptance. The Securities Appellate Tribunal has erred
in upholding the order of the Whole Time Member of SEBI as it
30
has failed to independently assess the evidence and material on
record while exercising its jurisdiction as the first appellate court.
As reiterated by this Court in a catena of judgements, it is the
duty of the first court of appeal to deal with all the issues and
evidence led by the parties on both, the questions of law as well
as questions of fact and then decide the issue by providing
adequate reasons for its findings. Unfortunately, the SAT failed to
apply its mind on the issues raised by the parties and routinely
affirmed the findings of the WTM without dealing with the issues
at hand. In this context, this Court has held in H.K.N. Swami v.
Irshad Basith [(2005) 10 SCC 243] that:
“The first appeal has to be decided on facts as well
as on law. In the first appeal parties have the right
to be heard both on questions of law as also on
facts and the first appellate court is required to
address itself to all issues and decide the case by
giving reasons. Unfortunately, the High Court, in
the present case has not recorded any finding
either on facts or on law. Sitting as the first
appellate court it was the duty of the High Court to
deal with all the issues and the evidence led by the
parties before recording the finding regarding title.”
The above position was reiterated by this Court in UPSRTC vs
Mamta [(2016) 4 SCC 172].
25. The SAT again fell in error when in spite of observing that there is
no direct evidence which suggests as to who had disseminated the
31
insider information to the appellants in C.A. No.7590 of 2021, it
concluded on mere “preponderance of probability” that it was late
P.C. Gupta as well as appellant Balram Garg who disseminated
both UPSI to the appellants in C.A. No.7590 of 2021.
26. Importantly, the WTM arrived at the finding that the appellants in
C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin
Gupta, Amit Garg and Quick Developers Pvt. Ltd. were not
“connected persons” qua the appellant Balram Garg. The WTM
held that:
“I also note that it is not the case in the SCN that
Noticee no.1, 2 and 3 were in any contractual,
fiduciary or employment relationship with the
company, or were the director or officer of the
company, during the past 6 months of the alleged
act of insider trading. Noticee No. 1 and 2 seem to
be in the employment of the company but that was
way back in 2015. I also note that the SCN has
also not identified that Noticee no. 1,2,3 or 4 had
any professional or business relationship with the
company, that allows the said Noticees, directly or
indirectly, access to unpublished price sensitive
information. In view of the above, I find that
Noticee no. 1,2,3 and 4 cannot be treated as
‘connected persons’ in terms of Reg. 2(1)(d)(i) of PIT
Regulations, 2015.”
[emphasis supplied]
27. In our opinion, two important findings of the WTM and SAT need
to be reexamined by this Court to adequately decide the present
set of appeals. Firstly, Whether the WTM and SAT rightly rejected
32
the claim of estrangement of the appellants in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg?
Secondly, could the aforementioned appellants be rightly held to
be “insiders” in terms of Regulation 2(1)(g)(ii) of the PIT
Regulations, only and entirely on the basis of circumstantial
evidence?
28. The appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani
Gupta, Sachin Gupta and Amit Garg, claimed before the WTM
and SAT that they were estranged from the family and did not
have the required connection with the appellant Balram Garg,
who was the MD of the PCJ at the relevant time period. However,
we are of the opinion that the WTM and SAT wrongly rejected this
claim of the Appellants in C.A. No.7590 of 2021 without
appreciating the facts and evidence as was produced before them.
The WTM and SAT ought to have appreciated the relevant facts for
ascertaining the true nature of relationship between the parties.
29. To understand the abovementioned relationship, it is pertinent to
note that PCJ was promoted in 2005 by three brothers viz. P.C.
Gupta [since deceased], Amar Chand Garg and Balram Garg
(Appellant in C.A. No.7054 of 2021). Subsequently, due to certain
differences, Amar Chand Garg and his branch of the family exited
33
the Company by entering into a family arrangement dated
01.07.2011 whereby their shareholding in the company was
reduced to a meagre 0.70%. In September, 2011, Amar Chand
Garg also resigned as the Vice Chairman of the company and
disassociated himself from the company. Further, the record
reveals that the son of Amar Chand Garg, i.e. Amit Garg (3
rd
Appellant in C.A. No.7590 of 2021) was never associated with the
company. On 31.03.2015, on account of certain disputes that had
arisen between Sachin Gupta (2
nd
Appellant in C.A. No.7590 of
2021) and his parents P.C. Gupta and Smt. Krishna Devi, Sachin
Gupta, so as to exit the company along with his family, resigned
from his position as President (Gold Manufacturing) of the
Company and Mrs. Shivani Gupta (1
st
Appellant in C.A. No.7590
of 2021 and wife of Sachin Gupta) also resigned from her post of
Senior Assistant Manager, Karol Bagh Store of PCJ. Importantly,
both Sachin Gupta and Smt. Shivani Gupta were, at no point of
time, Directors of PCJ.
30. Subsequently, late P.C. Gupta and his son Sachin Gupta entered
into another family arrangement dated 10.04.2015 whereby P.C.
Gupta and his wife agreed to transfer at least 1,60,00,000 shares
of the company to Sachin Gupta and his family, and in lieu
34
thereof Sachin Gupta and his family agreed not to have any right
whatsoever in the immovable and movable property of P.C. Gupta
and his wife. However, Sachin Gupta and his wife Smt. Shivani
Gupta were permitted to use the property at 1C, Court Road,
Civil Lines, Delhi for residential purposes only. It is pertinent to
note here that the said plot of land is a large tract of land and
separate buildings were constructed thereon. P.C. Gupta and
Sachin Gupta, along with their families, resided in separate floors
of the same building, whereas Amit Garg and Balram Garg
resided in separate buildings.
31. Post the agreed transfer of shares by P.C. Gupta and his wife,
Sachin Gupta and his wife Smt. Shivani Gupta inter alia, sold
some shares of the company from 02.04.2018 to 13.07.2018. This
aforesaid trade in shares was the subject matter of investigation
by the Respondent/SEBI as it was contented by SEBI that the
abovementioned trade was based on UPSI and hence was in
contravention of SEBI Act and PIT Regulations. The WTM and SAT
erred in not appreciating the aforementioned facts which
adequately establish that the there was a breakdown of ties
between both the parties, both at personal and professional level,
and that the said estrangement happened much prior to the two
35
UPSI. Hence, we are of the opinion that when the two family
arrangements (dated 01.07.2011 and 10.04.2015) are considered
in their right perspective, it adequately demonstrates that there
was a breakdown of relations between the parties. Additionally,
given the fact that the entire case against the appellants for the
offence of insider trading was based on the nature of close
relationship between the parties, once it has been rightly held by
the WTM that the appellants are neither “connected persons”
within the meaning of Regulation 2(1)(d) nor “immediate relatives”
within the meaning of Regulation 2(1)(f) of PIT Regulation, the
question of ipso facto relying on the nature of relationship
between the parties to come to the conclusion that they were “in
possession of or having access to UPSI” while trading with the
shares of the company is legally unsustainable.
32. Moreover, we find merit in the submission of the counsel for the
appellants in C.A. No.7590 of 2021 that even assuming that the
said family arrangements did not result in complete estrangement
of social relations between the parties, the SAT could not, by
virtue of this very fact, discharge SEBI of the onus of proof placed
on them to prove that the Appellants were in possession of UPSI.
In our opinion, the approach adopted by the SAT turns the SEBI
36
Act on its head as it places the burden of proving that there was a
complete breakdown of ties between the parties on the Appellants
in C.A. No.7590 of 2021 while conveniently ignoring the fact that
the onus was actually on SEBI to prove that the appellants were
in possession of or having access to UPSI. The legislative note to
Regulation 2(1)(g) makes the above position of law explicitly clear.
It states that:
“... The onus of showing that a certain person
was in possession of or had access to
unpublished price sensitive information at the
time of trading would, therefore, be on the person
leveling the charge after which the person who has
traded when in possession of or having access
to unpublished price sensitive information may
demonstrate that he was not in such possession or
that he has not traded or he could not access or
that his trading when in possession of such
information was squarely covered by the
exonerating circumstances.”
33. The second question before us is that could the appellants in C.A.
No.7590 of 2021, be rightly held to be “insiders” in terms of
regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on
the basis of circumstantial evidence?
34. In this context, it is important to highlight that the two major
Corporate Announcements, purportedly related to a change in
company’s capital structure, which were:
i.UPSI1 [Period between 25.04.2018 to 10.05.2018]:
37
The announcement of the Company on 10.05.2018 to
buy back up to 1,21,14,285 fully paid up equity
shares of Rs. 10/ each at a price of Rs. 350/ per
equity share.
ii.UPSI2 [Period between 07.07.2018 to 13.07.2018]:
The announcement of the company withdrawing their
buyback offer due to nonreceipt of NOC from State
Bank of India.
35. After carefully and extensively perusing the records, we have come
to the conclusion that the SAT erred in holding the appellants in
C.A. No.7590 of 2021 to be “insiders” in terms of Regulation 2(1)
(g)(ii) of the PIT Regulations on the basis of their trading pattern
and their timing of trading (circumstantial evidence). The
reasoning of the SAT is ex facie contrary to the records, as would
be evident from the forthcoming discussion wherein our analysis
of the alleged transactions has been divided into three phases viz.
PhaseI [Period from 02.04.2018 to 24.04.2018], PhaseII [Period
from 22.06.2018 to 06.07.2018] and PhaseIII [Period from
07.07.2018 to 13.07.2018].
36. PhaseI [02.04.2018 to 24.04.2018 i.e. Pre UPSI1 Period]:
Appellant Mrs. Shivani Gupta sold shares gifted to her by P.C.
Gupta and Smt. Krishna Devi (as part of the family arrangement
38
dated 10.04.2015) for personal and commercial reasons. The said
shares were sold for a price of Rs. 300 per share during the said
period. However, since the price of the shares kept falling, Mrs.
Shivani decided to stop selling shares on 24.04.2018. Further, if
we presume that she had internal knowledge of the company’s
affair including the impending buyback offer, it would be
reasonable to assume that she would not have sold such a large
chunk of shares (74,35,071 shares) in the preUPSI1 period
when the prices of the shares were falling and would have instead
chosen to wait for the buyback offer. This also assumes
importance since SEBI itself, vide its showcause notice dated
24.04.2020 had dropped the charges with respect to the UPSI1
period. This would mean that the notional loss purportedly
avoided by appellant Mrs. Shivani Gupta was only for the shares
traded during the UPSIII Period, and even according to SEBI,
there was no case that she made any money or avoided any loss
by trading in the shares of the company during the UPSI1 Period.
37. PhaseII [22.06.2018 to 06.07.2018 i.e. Pre UPSIII Period]:
PCJ had requested SBI to issue a NOC for the proposed buyback
offer on 07.07.2018 and the said request was rejected on the
same day by the SBI. However, even before the said refusal by the
39
SBI, the appellant Mrs. Shivani Gupta had sold 1,00,000 shares
on 06.07.2018 at a much lower price than the price at which the
shares were sold earlier. On the date on which these shares were
sold, the UPSI2 had not even come into existence. If the
arguments of the respondent hold any water, the Appellants
should have waited till UPSI2 and would only have subsequently
offloaded maximum number of shares during the said period to
avoid any notional loss. However, the records undercut the logic
adopted by the respondent/SEBI for the reason that the
appellants were not in possession of the UPSI2 and hence the
appellants started selling the shares even before the UPSI2 came
into existence.
38. PhaseIII [07.07.2018 to 13.07.2018 i.e. UPSIII Period]: The
Appellant Mrs. Shivani Gupta sold only 15,00,000 shares during
this period as opposed to the 74,35,071 shares that were sold at
an earlier point of time (PreUPSI1 Period). Importantly,
notwithstanding the fact that the appellant Mrs. Shivani Gupta
sold 15,00,000 shares, she continued to hold 12,84,111 shares of
the company, out of the total that were transferred to her by way
of the family arrangement. These above factors undercut the
argument of SEBI that the appellants sold huge number of shares
40
during UPSI2 period because they had the information that once
the information of withdrawal of buyback offer by PCJ was made
public, the price of the shares would drastically fall. Moreover, the
data reveals that the share price of the PCJ shares consistently
fell during the investigation period and therefore it would be
incorrect to say that the price of the shares fell only upon
announcement of the withdrawal of the buyback offer. In fact, the
records reveal that even after the announcement of the buyback
offer, there was no increase in the share prices of the company.
Resultantly, the appellants stopped selling shares on 13.07.2018
because they believed that the market price continued to fall so
badly that the shares possessed by them were not being valued
accurately in the market. Hence, the appellants decided to
constitute to hold their shareholdings.
39. In such view of the matter, we are of the opinion that there is no
correlation between the UPSI and the sale of shares undertaken
by the appellants in C.A. No.7590 of 2021. The said decisions of
selling the shares and the timings thereof were purely a personal
and commercial decision undertaken by them and nothing more
can be read into those decisions. If the appellants did possess the
UPSIs, we are unable to understand that why would the appellant
41
Mrs. Shivani Gupta sell only 15,00,000 shares during this period
as opposed to the 74,35,071 shares that were sold at an earlier
point of time (PreUPSI1 Period) and still continue to hold
12,84,111 shares of the company that could have also been sold
along with the 15,00,000 shares that were sold during the UPSI2
period.
40. We are also of the opinion that in the absence of any material
available on record to show frequent communication between the
parties, there could not have been a presumption of
communication of UPSI by the appellant Balram Garg. The
trading pattern of the appellants in C.A. No.7590 of 2021 cannot
be the circumstantial evidence to prove the communication of
UPSI by the appellant Balram Garg to the other appellants in C.A.
No.7590 of 2021. It would also be pertinent to note here that
Regulation 3 of the PIT Regulations, which deals with
communication of UPSI, does not create a deeming fiction in law.
Hence, it is only through producing cogent materials (letters,
emails, witnesses etc.) that the said communication of UPSI could
be proved and not by deeming the communication to have
happened owing to the alleged proximity between the parties. In
this context, even the showcause notices do not allege any
42
communication between the Appellant Balram Garg and the other
appellants in C.A. No.7590 of 2021. This is evident from the
following extract of the order of the WTM:
“A perusal of the SCNs shows that allegations of
Noticees no. 1 to 4 being connected person under
Regulation 2(1)(d)(i) seems to have been proceeded
on the basis of inference drawn that Noticees no. 1
to 3 being relatives of Late Shri Padam Chand
Gupta who was promotor and chairman of PC
Jewellers, and Noticee no. 5 who was the MD of PC
Jewellers, would be having frequent
communication with Late Shri Gupta and Noticee
No. 5. However, here I note that as per Regulation
2(1)(d)(i) , association by virtue of frequent
communication with the officer of the company
must be arising in the discharge of his/her duty
towards the company. The SCNs does not allege
that there was any communication between
Noticee no. 5 and Noticee no. 1 to 4, arising out
discharge of any duty owed by Noticee no. 1,2,3 or
4 to the compoany.” [emphasis
supplied]
41. This Court in Hanumant vs. State of Madhya Pradesh [AIR
1952 Supreme Court 343] has held that:
“Assuming that the accused Nargundkar had
taken the tenders to his house, the prosecution, in
order to bring the guilt home to the accused, has
yet to prove the other facts referred to above. No
direct evidence was adduced in proof of those
facts. Reliance was placed by the prosecution and
by the courts below on certain circumstances, and
intrinsic evidence contained in the impugned
document, Exhibit P3A. In dealing with
circumstantial evidence the rules specially
applicable to such evidence must be borne in mind.
43
In such cases there is always the danger that
conjecture or suspicion may take the place of legal
proof and therefore it is right to recall the warning
addressed by Baron Alderson, to the jury in Reg v.
Hodge ((1838) 2 Lew. 227), where he said :
"The mind was apt to take a pleasure in
adapting circumstances to one another, and
even in straining them a little, if need be, to
force them to from parts of one connected
whole; and the more ingenious the mind of the
individual, the more likely was it, considering
such matters to overreach and mislead itself,
to supply some little link that is wanting, to
take for granted some fact consistent with its
previous theories and necessary to render
them complete."
It is well to remember that in cases where the
evidence in of a circumstantial nature, the
circumstances from which the conclusion of guilt is
to be drawn should in the first instance be fully
established, and all the facts so established should
be consistent only with the hypothesis of the guilt
of the accused. Again, the circumstances should be
of a conclusive nature and pendency and they
should be such as to exclude every hypothesis but
the one proposed to be proved. In other words,
there must be a chain of evidence so far complete
as not to leave any reasonable ground for a
conclusion consistent with the innocence of the
accused and it must be such as to show that
within all human probability the act must have
been done by the accused. In spite of the forceful
arguments addressed to us by the learned
AdvocateGeneral on behalf of the State we have
not been able to discover any such evidence either
intrinsic within Exhibit P3A or outside and we are
constrained to observe that the courts below have
just fallen into the error against which warning
44
was uttered by Baron Alderson in the above
mentioned case.” [emphasis supplied]
42. This Court in Chintalapati Srinivasa Raju vs Securities and
Exchange Board of India [(2018) 7 SCC 443] has further held
that:
“Further, under the second part of Regulation 2(e)
(i), the connected person must be “reasonably
expected” to have access to unpublished price
sensitive information. The expression “reasonably
expected” cannot be a mere ipse dixit – there must
be material to show that such person can
reasonably be so expected to have access to
unpublished price sensitive information.
.
.
.
We have already demonstrated that the minority
judgment is much more detailed and correct than
the majority judgment of the Appellant Tribunal.
We accept Shri Singh’s submission that in cases
like the present, a reasonable expectation to be in
the know of things can only be based on
reasonable inferences drawn from foundational
facts. This Court in SEBI v. Kishore R. Ajmera,
(2016) 6 SCC 368 at 383, stated:
“26. It is a fundamental principle of law that
proof of an allegation leveled against a person
may be in the form of direct substantive
evidence or, as in many cases, such proof may
have to be inferred by a logical process of
reasoning from the totality of the attending
facts and circumstances surrounding the
allegations/charges made and leveled. While
direct evidence is a more certain basis to come
to a conclusion, yet, in the absence thereof the
Courts cannot be helpless. It is the judicial
duty to take note of the immediate and
45
proximate facts and circumstances
surrounding the events on which the
charges/allegations are founded and to reach
what would appear to the Court to be a
reasonable conclusion therefrom. The test
would always be that what inferential process
that a reasonable/prudent man would adopt
to arrive at a conclusion.”
We are of the view that from the mere fact that the
appellant promoted two joint venture companies,
one of which ultimately merged with SCSL, and the
fact that he was a cobrother of B. Ramalinga Raju,
without more, cannot be stated to be foundational
facts from which an inference of reasonably being
expected to be in the knowledge of confidential
information can be formed. The fact that the
appellant was to be continued as a director till
replacement again does not take us anywhere.
Shri Viswanathan has shown us that two other
independent nonexecutive directors were
appointed in his place on and from 23.1.2003.
What is clear is that the appellant devoted all his
energies to the businesses he was running, on and
after resigning as an executive director of SCSL, as
a result of which the salary he was being paid by
SCSL was discontinued.”
[emphasis supplied]
43. This Court has also held in a catena of cases that the
foundational facts must be established before a presumption is
made. In this context, in Seema Silk & Sarees vs. Directorate
of Enforcement [(2008) 5 SCC 580] this Court has held that:
“The presumption raised against the trader is a
rebuttable one. Reverse burden as also statutory
46
presumptions can be raised in several statutes as,
for example, the Negotiable Instruments Act,
Prevention of Corruption Act, TADA, etc.
Presumption is raised only when certain
foundational facts are established by the
prosecution. The accused in such an event would
be entitled to show that he has not violated the
provisions of the Act.”
In the present case, as rightly argued by the learned counsel of
the appellant, the foundational facts were not proved which could
raise the alleged presumption. SEBI failed to place on record any
material to prove that the appellants in C.A. No.7590/2021 were
“connected persons” to Balram Garg as required by Regulation
2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as
none of the appellants C.A. No.7590/2021 were financially
dependent on Balram Garg or even alleged to have consulted
Balram Garg in any decision related to trading in securities.
44. In light of the above principles of law laid down by this Court, it
was imperative on the Respondent/SEBI to place on record
relevant material to prove that the appellants in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and
Quick Developers Pvt. Ltd. were “immediate relatives” who were
“dependent financially” on appellant Balram Garg or “consult”
Balram Garg in “taking decisions relating to trading in securities”.
47
However, SEBI failed to do so as has been already recorded by the
WTM in its order dated 11.05.2021. The said appellants in C.A.
No.7590 of 2021 were not “immediate relatives” and were
completely financially independent of the appellant Balram Garg
and had nothing to do with the said Balram Garg in any decision
making process relating to securities or even otherwise.
45. In the context of appellant no. 4 (in C.A. No.7590 of 2021), namely
Quick Developers Pvt. Ltd., the record clearly reveals that it is
neither a “holding company” or an “associate company” or a
“subsidiary company” of PCJ nor the appellant Balram Garg has
ever been the Director of Quick Developers Pvt. Ltd. Therefore,
Quick Developers Pvt. Ltd. cannot be held to be a “connected
person” vis
àvis the appellant Balram Garg.
46. Furthermore, reliance of the Respondent/SEBI on transactions
between appellant Sachin Gupta and PCJ and the subsequent
payments of rent by PCJ is against the principles of natural
justice as these allegations were not part of the Show Cause
Notices. To cement this proposition, reference could be made to
Tarlochan Dev Sharma vs State of Punjab [(2001) 6 SCC 260]
wherein this Court has held that:
48
“We are, therefore, clearly of the opinion that not
only the principles of natural justice were violated
by the factum of the impugned order having been
founded on grounds at variance from the one in the
show cause notice, of which appellant was not
even made aware of let alone provided an
opportunity to offer his explanation, the allegations
made against the appellant did not even prima
facie make out a case of abuse of powers of
President.”
[emphasis supplied]
Similar observations have also been made by this Court in
Hindustan Lever Ltd. vs. Director General (Investigation and
Registration) [(2001) 2 SCC 474].
47. Lastly, we have given our anxious consideration to the
judgements relied upon by the learned counsel of the Respondent
viz. SEBI vs Kishore R. Ajmera [(2016) 6 SCC 368] and
Dushyant N. Dalal vs. SEBI [(2017) 9 SCC 660] . Suffice it to
hold that these cases are distinguishable on the facts of the
present case, as the former is not a case of insider trading but
that of Fraudulent/Manipulative Trade Practices; and the latter
case relates to Interests and Penalty rather than the subject
matter at hand. Reliance placed on the case of Kishore R.
Ajmera (supra) to show that presumption can be drawn on the
basis of immediate and relevant facts is contrary to law already
49
settled by this Court in the case of Chintalapati Srinivasa Raju
(supra) where it is held that “a reasonable expectation to be in the
know of things can only be based on reasonable inference drawn
from foundational facts”. It has further been held that merely
because a person was related to the connected person cannot by
itself be a foundational fact to draw an inference.
48. To conclude, the entire case of the Respondents was premised on
two important propositions, that firstly, there existed a close
relationship between the appellants herein; and secondly, that
based on the circumstantial evidence (trading pattern and timing
of trading), it could be reasonably concluded that the appellants
in C.A. No.7590 of 2021 were “insiders” in terms of Regulation
2(1)(g)(ii) of the PIT Regulations. However, as the discussion above
would reveal, the WTM and SAT wrongly rejected the claim of
estrangement of the Appellants in C.A. No.7590 of 2021, without
appreciating the facts and evidence as was produced before them.
The records and facts adequately establish that the there was a
breakdown of ties between the parties, both at personal and
professional level and that the said estrangement happened much
prior to the two UPSI. Secondly, as has already been discussed,
the SAT erred in holding the appellants in C.A. No.7590 of 2021
50
to be “insiders” in terms of regulation 2(1)(g)(ii) of the PIT
Regulations on the basis of their trading pattern and their timing
of trading (circumstantial evidence). We are of the firm opinion
that there is no correlation between the UPSI and the sale of
shares undertaken by the appellants in C.A. No.7590 of 2021.
Moreover, in the absence of any material available on record to
show frequent communication between the parties, there could
not have been a presumption of communication of UPSI by the
appellant Balram Garg. The trading pattern of the appellants in
C.A. No.7590 of 2021 cannot be the circumstantial evidence to
prove the communication of UPSI by the appellant Balram Garg to
the other appellants in C.A. No.7590 of 2021. There is no material
on record for the WTM and the SAT to arrive at the finding that
both late P.C. Gupta and the appellant Balram Garg
communicated the UPSI to the other appellants in C.A. No.7590 of
2021. The said appellants in C.A. No.7590 of 2021 were not
“immediate relatives” and were completely financially independent
of the appellant Balram Garg and had nothing to do with the him
in any decision making process relating to securities or even
otherwise. The submission of the learned counsel of the
respondent regarding the same residential address of the
51
appellants also falls flat as admittedly the parties were residing in
separate buildings on a large tract of land. Lastly, in our opinion,
the SAT order suffers from nonapplication of mind and the same
is a mere repetition of facts stated by the WTM. The Appellate
Tribunal was exercising jurisdiction of a First Appellate Court and
was bound to independently assess the evidenced and material on
record, which it evidently failed to do.
49. Accordingly, the appeals are allowed and the impugned judgement
and final orders of WTM and SAT are set aside. The deposits made
by the appellants in both the appeals in terms of the impugned
orders or interim orders of this Court shall be refunded to the
respective appellants.
50. No orders as to costs.
………………………..J.
[VINEET SARAN]
………………….…….J.
[ANIRUDDHA BOSE]
New Delhi
Dated: APRIL 19, 2022
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